What Is an HO-3 Homeowners Insurance Policy?

HO-3 Homeowners Insurance Policy Explained

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An HO-3 homeowners insurance policy is the most common type of homeowners insurance, covering all causes of damage to the main dwelling and other structures except those specifically excluded in the policy, such as floods and earthquakes. Other homeowners insurance policies are typically a variation of an HO-3 policy.

Learn more about HO-3 homeowners insurance policies, how they work, and how they differ from other homeowners insurance forms.

Definition and Examples of an HO-3 Homeowners Insurance Policy

An HO-3 homeowners insurance policy is a form of home insurance that provides coverage for damage to your dwelling, other structures on the property, personal property, loss of use, personal liability, and medical payments.

All perils, or causes of loss, are covered for damage to your home and other structures, except those that are specifically named on the policy as exclusions. Exclusions might include earthquakes, floods, wear and tear, neglect, and damage caused by freezing.

  • Alternate name: Special Form Policy

Coverage for your home and other structures is written on an “all-risk basis” ( everything except named exclusions is covered). Personal property, or the contents of your home, is covered on a “named-peril basis” (only damages from perils named are covered).

How an HO-3 Homeowners Insurance Policy Works

Insurance polices are designed to cover damage to property if the loss was caused by a covered peril.

Homeowners insurance policies vary according to the types of property and the number of perils they cover. Policies are typically considered "open-perils," which covers all causes of loss unless excluded, or "named-perils," which covers only specified sources of loss.

A common type of homeowners insurance is one that combines attributes of both types—the special form, or HO-3, homeowners insurance policy. An HO-3 homeowners insurance policy, like other homeowners policies, has two parts: Section I (coverages A, B, C, and D) for your property and Section II (coverages E and F) for liabilities.

Here’s a description of each individual coverage and the general limits most insurers will provide:

Coverage A: Your Dwelling

Dwelling coverage pays for damage to your house and any structures attached to it, including plumbing fixtures, electrical wiring, and HVAC systems. Damage must be a result of a covered peril. The limit of your dwelling coverage should be at least 80% or equal to your home’s full replacement cost.

Property damage to your dwelling and any other structures at your residence, is covered on an open-perils basis. An insurer will reimburse you for losses to your property except those as a result of perils specifically excluded in the policy.

Coverage B: Other Structures

Coverage B pays for damage to structures on your property that are not attached to your house. Covered structures include free-standing garages, sheds, fences, and guest cottages among others. Insurers limit this coverage to 10% of your dwelling coverage.

Coverage C: Personal Property

This coverage reimburses you for the value of the contents of your home, possessions owned by you and people who live with you. Coverage may also include items lost or damaged outside your premises. The coverage limit is usually 50% of your dwelling coverage or any amount agreed on between you and your insurer. Coverage may not include some types of high-value items, also known as scheduled personal property. In an HO-3 policy, coverage for personal property is limited to named perils.

The contents of your home are covered on a named-peril basis. These perils are listed in the broad form HO-2, which is an HO-2 insurance policy. They include damage from lightning, fire, and theft.

Coverage D: Loss of Use

This coverage helps pay any additional living expenses such as meals and housing if your home is rendered uninhabitable. Insurers limit this coverage to 20% of your dwelling coverage. Insurance companies typically don’t reimburse you for all living expenses. They pay only for the difference between your normal living expenses and extra living expenses.

Coverage E: Personal Liability

This coverage helps offset your financial losses if you’re sued or deemed legally responsible for damages or injuries to others. You are not covered in situations where you acted intentionally. You choose your coverage limits for personal liability, which is usually a minimum of $100,000.

Coverage F: Medical Payments 

This coverage pays medical bills for people who are accidentally hurt on your property. Coverage doesn’t apply to those who live in your home. You can choose your coverage limits, which generally must be at least $1,000.

Some insurance companies offer more comprehensive coverage by adding policy riders that delete specific exclusions from the HO-3 policy.

HO-2 vs. HO-3 Homeowners Insurance

Whether you own or rent, you can choose from various packages of home insurance available to protect your home and possessions. Each package protects against specific perils.

Insurance carriers sometimes write and file customized policies. Insurers who don’t file their own policies use standard forms available from rating organizations such as the Insurance Services Office Inc. (ISO). 

Again, Insurance companies will typically avail two approaches to insuring your property: the named-peril policy approach and the open-peril policy approach, which are represented by HO-2 and HO-3 homeowners insurance, respectively.

The named-peril policy is a lower-cost approach that names all events you are insured against in the event of a loss. The open-peril policy is a higher-cost approach that, while alluding to unlimited coverage, names exclusions you’re not insured against.

With a named-peril policy, the policyholder must prove a covered peril caused damage to their property. With an open-peril policy, the insurer must prove an exclusion applies to the event that resulted in damage.

An HO-2 policy, which is also referred to as the Broad Form, is a basic homeowners insurance that covers perils listed on an HO-1 policy plus additional perils. Your dwellings, other structures, and personal property are covered against perils explicitly named in the policy.

An HO-3 policy is the most widely used form of homeowners insurance. It protects against all risks to your dwelling (and other structures) except those specifically excluded. However, your personal property is insured on a named-perils basis—that is, against damage or loss caused by perils listed in an HO-2 policy.

HO-2 Homeowners Insurance  HO-3 Homeowners Insurance
Less expensive More expensive
Less expansive coverage More expansive coverage
Names the specific perils you’re insured against Specifies the exclusions that you won’t receive compensation for in case of damage or loss

Key Takeaways

  • An HO-3 homeowners insurance policy pays for all causes of loss to your dwelling and other structures, except when the loss is caused by an excluded peril.
  • An HO-3 homeowners insurance policy combines the features of an open-peril policy and named-peril policy.
  • An HO-3 policy insures your personal property against perils specifically named in the contract.